Bankrupt Midway Tangled in Unreal Suit

Bankrupt Midway Tangled in Unreal Suit

Bankrupt Midway Tangled in Unreal Suit

Not only does Chicago-based Midway Games have to deal with complicated bankruptcy proceedings involving displeased creditors and feds, it is also tangled up in the ongoing Unreal Engine 3 lawsuit, Silicon Knights vs. Epic Games.

Court filings obtained by Edge reveal that in mid-March, Midway, who Silicon Knights subpoenaed for records relating to UE3 in 2008, has requested that an Illinois U.S. District Court allocate all costs of the records review to Silicon Knights.

Midway, which has used Epic’s UE3 across its entire portfolio of games this hardware generation, also requested the redaction of certain internal UE3-related documents for fear that competitor Silicon Knights would have access to important trade secrets.

Midway claims that its February 12 Chapter 11 bankruptcy filing prevents it from fronting any of the costs associated with the review, which involves the contract hiring of external attorneys and ex-Midway employees.

“The protection and preservation of Midway’s assets is of critical importance” as the bankruptcy continues, Midway’s filing read. The publisher said it is fearful that it might not be able to pay the attorneys if costs related to the subpoena exceed an allotted amount, and that creditors would not approve of the spend.

As of December 31, 2008, Midway said it had total assets of around $173 million and total liabilities of approximately $337.3 million.

A judge in August 2008 had already required Silicon Knights to pay "reasonable attorney’s fees and costs for the search."

In a response to Midway’s request to defer costs, Silicon Knights argued that during the bankruptcy proceedings, Midway’s creditors had already approved the publisher to spend an average of $35K per month over a three month period for the review.

Silicon Knights’ attorneys stated, “Certainly, counsel for Midway cannot say that the bankruptcy will fail because of some initial opposition to the use of cash collateral in a bankruptcy case as large as Midway’s, which involves assets worth in excess of $150 million.”

Silicon Knights argued that it has “taken extraordinary steps” to avoid imposing an “undue burden” on Midway.

The Canadian Too Human developer also brushed off Midway’s fears of exposed trade secrets, saying Midway failed to explain “how an attorney of record’s eyes-only review of the documents with a non-waiver provision in place could possibly lead to any harm to Midway whatsoever.

“…Midway has failed to give this Court any compelling reason to order the discretionary relief that it demands. Its demand should be denied for that reason alone.”

Midway fired back once again, calling its request “reasonable,” and questioned why Silicon Knights can’t front the bills.

Midway’s counsel stated, “[Silicon Knights] has employed attorneys across the country to prosecute this lawsuit pending in North Carolina, yet it offers no reasonable explanation as to why it is entitled to defer the potentially substantial costs of compliance in this instance to a disinterested third party.”

The parties await the court’s decision.

Silicon Knights filed suit against Gears of War developer Epic in July 2007, accusing Epic of fraud, breach of contract and other claims. Silicon Knights had been using UE3 for development of the Xbox 360 RPG Too Human.